Enron

One of Enron's primary predecessors was InterNorth, which was formed in 1930, in Omaha, Nebraska, just a few months after Black Tuesday. The low cost of natural gas and the cheap supply of labor during the Great Depression helped to fuel the company's early beginnings, doubling in size by 1932. Over the next 50 years, Northern expanded even more as it acquired many energy companies. It was reorganized in 1979 as the main subsidiary of a holding company, InterNorth, a diversified energy and energy-related products firm. Although most of the acquisitions conducted were successful, some ended poorly. InterNorth competed with Cooper Industries unsuccessfully over a hostile takeover of Crouse-Hinds Company, an electrical products manufacturer. Cooper and InterNorth feuded in numerous suits during the takeover that were eventually settled after the transaction was completed. The subsidiary Northern Natural Gas operated the largest pipeline company in North America. By the 1980s, InterNorth became a major force for natural gas production, transmission, and marketing as well as for natural gas liquids, and was an innovator in the plastics industry. In 1983, InterNorth merged with the Belco Petroleum Company, a Fortune 500 oil exploration and development company founded by Arthur Belfer.

The Houston Natural Gas (HNG) corporation was initially formed from the Houston Oil Co. in 1925 to provide gas to customers in the Houston market through the building of gas pipelines. Under the leadership of CEO Robert Herring from 1967 to 1981, the company took advantage of the unregulated Texas natural gas market and the commodity surge in the early 1970s to become a dominant force in the energy industry. Toward the end of the 1970s, HNG's luck began to run out with rising gas prices forcing clients to switch to oil. In addition, with the passing of the Natural Gas Policy Act of 1978, the Texas market was less profitable and as a result, HNG's profits fell. After Herring died in 1981, M.D. Matthews briefly took over as CEO in a 3-year stint with initial success, but ultimately, a big dip in earnings led to his exit. In 1984, Kenneth Lay succeeded Matthews and inherited the troubled conglomerate.

With its conservative success, InterNorth became a target of corporate takeovers, the most prominent originating with Irwin Jacobs. …

In 2001, after a series of revelations involving irregular accounting procedures perpetrated throughout the 1990s involving Enron and its auditor Arthur Andersen that bordered on fraud, Enron filed for the then largest Chapter 11 bankruptcy in history (since surpassed by those of Worldcom during 2002 and Lehman Brothers during 2008), resulting in $11 billion in shareholder losses.

As the scandal progressed, Enron's share price decreased from US$90 during the summer of 2000, to just pennies. Enron's demise occurred after the revelation that much of its profit and revenue were the result of deals with special-purpose entities (limited partnerships, which it controlled). This maneuver allowed many of Enron's debts and losses to disappear from its financial statements.

Enron filed for bankruptcy on December 2, 2001. In addition, the scandal caused the dissolution of Arthur Andersen, which at the time was one of the Big Five of the world's accounting firms. The company was found guilty of obstruction of justice in 2002 for destroying documents related to the Enron audit. Since the SEC is not allowed to accept audits from convicted felons, Andersen was forced to stop auditing public companies. Although the conviction was dismissed in 2005 by the Supreme Court, the damage to the Andersen name has prevented it from recovering or reviving itself as a viable business even on a limited scale.

Enron also withdrew a naming-rights deal with the Houston Astros Major League Baseball club for its new stadium, which was known formerly as Enron Field (now Daikin Park).

Enron used a variety of deceptive and fraudulent tactics and accounting practices to cover its fraud in reporting its financial information. Special-purpose entities were created to mask significant liabilities from Enron's financial statements. These entities made Enron seem more profitable than it was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more financial deception to create the illusion of billions of dollars in profit while the company was actually losing money. This practice increased their stock price to new levels, at which point the executives began to work on insider information and trade millions of dollars' worth of Enron stock. …

In August 2000, Enron's stock price attained its greatest value, closing at $90 on the 23rd. At this time, Enron executives, who possessed inside information on the hidden losses, began to sell their stock. At the same time, the general public and Enron's investors were told to buy the stock. Executives told the investors that the stock would continue to increase until it attained possibly the $130 to $140 range, while secretly unloading their shares.

As executives sold their shares, the price began to decrease. Investors were told to continue buying stock or hold steady if they already owned Enron because the stock price would rebound shortly. Kenneth Lay's strategy for responding to Enron's continuing problems was his demeanor. As he did many times, Lay would issue a statement or make an appearance to calm investors and assure them that Enron was doing well. In March 2001 an article by Bethany McLean appeared in Fortune magazine noting that no one understood how the company made money and questioning whether Enron stock was overvalued.

By August 15, 2001, Enron's stock price had decreased to $42. Many of the investors still trusted Lay and believed that Enron would rule the market. They continued to buy or retain their stock as the equity value decreased. As October ended, the stock had decreased to $15. Many considered this a great opportunity to buy Enron stock because of what Lay had been telling them in the media.

Lay was accused of selling more than $70 million worth of stock at this time, which he used to repay cash advances on lines of credit. He sold another $29 million worth of stock in the open market. Also, Lay's wife, Linda, was accused of selling 500,000 shares of Enron stock totaling $1.2 million on November 28, 2001. The money earned from this sale did not go to the family but rather to charitable organizations, which had already received pledges of contributions from the foundation. Records show that Mrs. Lay made the sale order sometime between 10:00 and 10:20 am. News of Enron's problems, including the millions of dollars in losses they hid, became public about 10:30 that morning, and the stock price soon decreased to less than one dollar.

Former Enron executive Paula Rieker was charged with criminal insider trading and sentenced to two years' probation. Rieker obtained 18,380 Enron shares for $15.51 a share. …

In October 2000, Daniel Scotto, the most renowned utility analyst on Wall Street, suspended his ratings on all energy companies conducting business in California because of the possibility that the companies would not receive full and adequate compensation for the deferred energy accounts used as the basis for the California Deregulation Plan enacted during the late 1990s. Five months later, Pacific Gas & Electric (PG&E) was forced into bankruptcy. Republican Senator Phil Gramm, husband of Enron Board member Wendy Gramm and also the second-largest recipient of campaign contributions from Enron, succeeded in legislating California's energy commodity trading deregulation. Despite warnings from prominent consumer groups which stated that this law would give energy traders too much influence over energy commodity prices, the legislation was passed in December 2000.

Because of Enron's new, unregulated power auction, the company's "Wholesale Services'' revenues quadrupled – from $12 billion in the first quarter of 2000 to $48.4 billion in the first quarter of 2001.

After the passage of the deregulation law, California had a total of 38 Stage 3 rolling blackouts declared, until federal regulators intervened in June 2001. These blackouts occurred as a result of a poorly designed market system that was manipulated by traders and marketers, as well as from poor state management and regulatory oversight. Subsequently, Enron traders were revealed as intentionally encouraging the removal of power from the market during California's energy crisis by encouraging suppliers to shut down plants to perform unnecessary maintenance, as documented in recordings made at the time. These acts contributed to the need for rolling blackouts, which adversely affected many businesses dependent upon a reliable supply of electricity, and inconvenienced a large number of retail customers. This scattered supply increased the price, and Enron traders were thus able to sell power at premium prices, sometimes up to a factor of 20 times its normal peak value.

The callousness of the traders' attitude toward ratepayers was documented in an evidence tape of a conversation regarding the matter, and sarcastically referencing the confusion of retiree voters in Florida's Miami-Dade County in the November 2000, presidential election.

"They're fucking taking all the money back from you guys? …

Enron traded in more than 30 different products, including oil and LNG transportation, broadband, principal investments, risk management for commodities, shipping / freight, streaming media, and water and wastewater. Products traded on EnronOnline in particular included petrochemicals, plastics, power, pulp and paper, steel, and weather risk management. Enron was also an extensive futures trader, including sugar, coffee, grains, hogs, and other meat futures. At the time of its bankruptcy filing in December 2001, Enron was structured into seven distinct business units.

Enron manufactured gas valves, circuit breakers, thermostats, and electrical equipment in Venezuela using INSELA SA, a 50–50 joint venture with General Electric. Enron owned three paper and pulp products companies: Garden State Paper, a newsprint mill; as well as Papiers Stadacona and St. Aurelie Timberlands. Enron had a controlling stake in the Louisiana-based petroleum exploration and production company Mariner Energy.

Enron opened EnronOnline, an electronic trading platform for energy commodities, on November 29, 1999. Conceptualized by the company's European Gas Trading team, it was the first web-based transaction system that allowed buyers and sellers to buy, sell, and trade commodity products globally. It allowed users to do business only with Enron. The site allowed Enron to transact with participants in the global energy markets. The main commodities offered on EnronOnline were natural gas and electricity, although there were 500 other products including credit derivatives, bankruptcy swaps, pulp, gas, plastics, paper, steel, metals, freight, and TV commercial time. At its maximum, more than $6 billion worth of commodities were transacted using EnronOnline every day, but specialists questioned how Enron reported trades and calculated its profits, saying that the same fraudulent accounting that was rampant at Enron's other operations may have been used in trading.

After Enron's bankruptcy in late 2001, EnronOnline was sold to the Swiss financial giant UBS. Within a year, UBS abandoned its efforts to relaunch the division and closed it in November 2002.

Enron International (EI) was Enron's wholesale asset development and asset management business. Its primary emphasis was developing and building natural gas power plants outside North America. …